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Business Meal Tax Deduction for Small Business Owners

A meal is a tax deductible business expense when you are traveling for work, attending a business conference, or entertaining clients. Whether for a cross-country flight or a night out across the state, expenses related to travel and meals may qualify as self-employment tax deductions. When you are self-employed, generally, you can deduct ordinary, necessary expenses of traveling far from home to do work from your income.

Being self-employed allows you to deduct car expenses when you use a personal vehicle for work-related purposes. The IRS treats the employer part of self-employment taxes as business expenses, allowing you to tax deduct them as such. The IRS takes everything into account, allowing you to tax deduct the value of all of these business expenses from your total income before they impose a tax on it.

Other business expenses may be depreciated or amortized, meaning that over a period of years, you may be able to deduct small amounts of that expense every year. Even then, costs are deducted over 15 years, but you can choose to tax deduct the first $5,000 in expenses in year one.

You also can take depreciation deductions, which can amount to up to $18,000 the first year if you are using the vehicle 100% for work (the exact amount depends on how much your vehicle is worth). From 2018 to 2022, you can take advantage of 100% bonus depreciation to deduct in a single year the entire value of the personal property that you use for business, like computers.

For instance, if you use your personal credit card solely for business expenses, you generally still get to deduct interest charges. Even if you use an Internet or cell phone plan for personal use and business, you may be able to tax deduct some of those expenses from your taxes.

Other frequently challenged expenses are your entertainment expenses, work meals, and personal cell phones. The tax deductions in the next sections are business expenses (e.g., home office expenses and business meals) or personal expenses (e.g., health insurance and charitable contributions).

You must also keep good records of the expenses at your residence, divide your housing expenses between your business use and personal use, and fill out a special tax form, Form 8829. As a freelancer, it is essential that you keep records of your income and expenses, including notes about travel, meals for work, and mileage. As an alternative, keep records of the costs of meals when traveling for work, using a standard food expense deduction approach.

A meal cannot be extravagant or lavish in these circumstances, and you can deduct just 50% of a business meals actual cost if you keep the receipt or 50% of a standard meal allowance if you keep records of time, location, and the business purpose of the trip, but no receipts of actual meals. However, temporarily, in 2021 and 2022, the cost of meals is 100 percent deductible, so make sure you include your business meals as part of your overall expenses. If you already filed your freelance taxes for 2020, you might have noticed your meal expenses deduction is significantly lower than in years past.

While that is likely partly due to you having less work meals because of the COVID-19 pandemic, it is also related to some big changes in entertainment and food-expense deductions brought on by the Tax Cuts and Jobs Act (TCJA) – it was just finalized in the final months of 2020. As mentioned, the Tax Cuts and Jobs Act in 2018 changed the way that meal expenses could be deducted. With the passage of the 2018 Tax Cuts and Jobs Act, you may now tax deduct the cost of food and drinks alone; any other costs associated with entertaining are no longer deductible.

What types of business meals can take 100% meal tax deduction?

The rules around tax deductions for business meals can be complex, but there are certain types of business meals that may be eligible for a 100% tax deduction. Here are some examples:

Office snacks and beverages: If you provide snacks and beverages to your employees on a regular basis, such as coffee, tea, water, or healthy snacks, these expenses may be eligible for a 100% tax deduction.

Meals provided for the convenience of the employer: If you provide meals to your employees for your own convenience, such as during an overnight shift or on a business trip, these expenses may also be eligible for a 100% tax deduction.

Meals provided to promote goodwill: If you provide meals to current or potential customers, clients, or business partners to promote goodwill, these expenses may be eligible for a 100% tax deduction. However, it is important to note that the meals must be reasonable and necessary, and you must be able to clearly document the business purpose of the meal.

Meals provided at company events: If you provide meals at company events, such as holiday parties or team-building activities, these expenses may be eligible for a 100% tax deduction. However, there are certain limits and restrictions on the deductibility of these expenses, so it’s important to consult with a tax professional to ensure that you are in compliance with tax laws and regulations.

It’s important to keep accurate records and documentation of all business meals, regardless of whether they are eligible for a 100% tax deduction. This will help you accurately claim any deductions you are eligible for and minimize the risk of errors or penalties in case of an audit.